Oh cool, there's some awesome starting background possibilities huh?
Is there any way to make that rainbow less fuzzy and more transparent?
If I saw a rainbow like that in real life, it'd hurt my eyes.

I found out WHY you're getting the BG bugs.
The peach castle top BG has animated stuff. Look at Peach's castle flag. Those animated tiles are "overwriting" parts of the BG.

Solution: Just use another BG id.

Also, I have something interesting to research, that could help you.
byte 11 of block 5 controls the BG horizontal scrolling. (And byte 13 controls the vertical one, I think in the same format)
Also, bytes 11 and 13 of blocks 3 or 4 (i dont remember which one) control the scroll of the bottom bg layer.

I still dont understand what it does exactly, but i'm telling you because maybe there's a way to make the background not scroll at all, so you'd end up with a "static" rainbow BG. Maybe you want to investigate it further

These are the values i've tried so far:

0x0: Scroll exactly same as level. Used in w2-3 (sewer level) for example
0x1: Scroll slower than level. Used in most levels.
0x2: Scroll slower than level, maybe slower than 0x1?
0x4: Scroll faster than level
0x8: scroll slower than level, again?
0x10: scrool same as level
0x30: Scroll same as level.
0xFF: Makes the BG scroll HYPER CRAZY FAST!

Also, the sewer level 2-3 is weird: It uses 0x0 for byte 11 and 0x30 for byte 13. I dunno what's the difference, but there MUST be a difference?

Yeah, those new bugs were because of the editor. r139 solves them.
Keep in mind that it's impossible to get it imported perfectly. Each BG is restricted to max 320 tiles and the rainbow BG has more than 320, so it must be reduced.